Question

Problem 7-60 (Static) Show Flow of Costs to Jobs (LO 7-2, 3)

Kim's Asphalt does driveway and parking lot resurfacing work for large commercial clients as well as small residential clients. An inventory of materials and equipment is on hand at all times so that work can start as quickly as possible. Special equipment is ordered as required. On May 1, the Materials and Equipment Inventory account had a balance of $36,000. The Work-in-Process Inventory account is maintained to record costs of work not yet complete. There were two such jobs on May 1 with the following costs.

	Job 27 Highlands Mall			Job 33 Pine Ridge Estates
Materials and equipment	$	15,375		$	52,500
Direct labor		13,500			26,250
Overhead (applied)		4,050			7,875

Overhead has been applied at 30 percent of the costs of direct labor.

During May, Kim's Asphalt started two new jobs. Additional work was carried out on Jobs 27 and 33, with the latter completed and billed to Pine Ridge Estates. Details on the costs incurred on jobs during May follow.

Job	27			33			34			35
Materials and equipment	$	3,000		$	4,800		$	4,600		$	2,900
Direct labor (wages payable)		4,500			6,750			5,900			1,600

Other May Events

1. Received $12,500 payment on Job 24 delivered to customer in April.
2. Purchased materials and equipment for $9,400 on account.
3. Billed Pine Ridge Estates $130,000 and received payment for $75,000 of that amount.
4. Determined that payroll for indirect labor personnel totaled $650.
5. Issued supplies and incidental materials for current jobs costing $155.
6. Recorded overhead and advertising costs for the operation as follows (all cash except equipment depreciation).

Property taxes	$	550
Storage area rental		675
Truck and delivery cost		320
Advertising and promotion campaign		600
Inspections		200
Telephone and other miscellaneous		325
Equipment depreciation		450

Required:

a. Prepare journal entries to record the flow of costs for operations during May.

b. Calculate the amount of over- or underapplied overhead for the month.

c. Determine inventory balances for Materials and Equipment Inventory and Work-in-Process Inventory.

Answer 1

Answer :

(a)

	General Journal	Debit	Credit
1	Cash	$12,500
	Accounts receivable		$12,500
2	Material and equipment inventory	$9,400
	Accounts payable		$9,400
3	Accounts receivable	$130,000
	Sales revenue		$130,000
	Cash	$75,000
	Accounts receivable		$75,000
4	Manufacturing overhead	$650
	Wages payable		$650
5	Manufacturing overhead	$155
	Material and equipment inventory		$155
6	Manufacturing overhead ($550+675+320+200+325+450)	$2,520
	Selling and administrative cost-(Advertising)	600
	Cash ($2,520+600-450)		$2,670
	Accumulated depreciation		450

(b).

Actual overhead = $650 (indirect labor)+155(indirect material)+2,520(other manufacturing overhead) = $3,325

Applied overhead = $18,750 (Total direct labor cost for May)*30% = $5,625

Over applied overhead = $2,300

(c).

Material and equipment inventory = $36,000 (Beginning balance)+9,400 (Purchases)-15,300 (Direct material issued)-155 (Indirect material)

Material and equipment inventory = $29,945

Work in process inventory = $119,550 (Job 27+Job 33)+15,300 (Direct material issued)+18,750 (Direct labor cost)+5,625 (Applied overhead)-100,200 (Cost of Job 33 completed ) = $59,025

Working Note:

Cost of Job 33 completed = $86,625 ( Beginning balance)+13,575 (4,800+6,750+6,750*30%) = $100,200

Please Upvote Thank You !!!